Economy shadows Obama '12

A series of troubling signs for the U.S. economy threatens to dash hopes that 2011 would be a year of robust recovery — and that could prove troublesome for President Barack Obama’s reelection chances.

The Obama team has long hoped that the president’s 2012 campaign would be underpinned by an economy that was clearly accelerating out of the Great Recession, showing strong growth and job creation. But recent economic data paint a picture of an economy stuck in low gear, held down by continued high personal debt, a moribund housing market, high food and gas prices, persistent weather disasters and widespread unease about what the future holds.

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And the president’s would-be 2012 opponents are noticing. Former Massachusetts Gov. Mitt Romney, who officially announces his candidacy Thursday in New Hampshire, said Tuesday on NBC’s “Today” show that Obama has been “one of the most ineffective presidents at the job at hand that I’ve ever seen.”

Said Romney: “The No. 1 issue he faced walking in the door was an economy in fast decline. He didn’t cause it, but he made things worse.”

That conclusion is certainly debatable, but recent portents aren’t promising. Some economists had hoped the killing of Osama bin Laden might ease general American anxiety and lead to stronger consumer sentiment. No such luck. Consumer confidence dropped to a weak reading of 60.8 this month, down from 66 in April, according to data out Tuesday from the Conference Board.

Corporate chief executives, meanwhile, appear unwilling to use their run of strong profits to go on significant hiring campaigns until economic signals point in a more positive direction and consumer spending trends suggest more robust demand.

Other recent weak signals include a much-worse-than-expected 4.2 percent drop in home prices in the first quarter as measured by the S&P/Case-Shiller index. The housing market is now clearly in a “double-dip” decline, back to levels not seen since well before the recession. Pending homes sales dropped 11.6 percent in April, and consumer spending grew a tepid 0.4 percent, the smallest increase in three months.

The Commerce Department recently left its estimate for first-quarter gross domestic product growth unchanged at 1.8 percent. Many economists had expected an upward revision to around 2.2 percent, setting the stage for second-quarter growth of roughly 3 percent.

In addition, weekly jobless claims, which tend to drop sharply as the economy improves, have resumed an upward trend and now consistently come in above 400,000, suggesting no positive hiring momentum.

“The economy is clearly ebbing right now in part because of the surge in oil and food prices, which are a significant weight on growth,” said Mark Zandi, chief economist at Moody’s Analytics. “Fallout from the Japanese disaster has also had an impact on automotive and related manufacturing.”

Economists at Nomura recently noted that the stalled housing market — beset by ongoing foreclosures and underwater mortgages — has locked the economy into a weak recovery.